Sunday, June 6, 2010

The Immediate Effects of Fee Increases

In the last few days I have started to see firsthand how the legislative actions of the past few weeks are having an immediate effect on those I represent. Last week, I was contacted by an individual who lives in my district. He is a small businessman who owns a vending machine business. He places vending machines at several locations in the Oklahoma City area and supplies those machines with various products.

Over the past few years his bottom line has been affected in all of the ways you might expect. From the increased cost of fueling his supply truck to the increased cost of purchasing the products that go into the vending machine, he has been dealing with all of the inflationary pressures that most small business owners are experiencing. You can only imagine how shocked he was when on Tuesday of last week he saw a news story explaining the implications of legislation which was passed late in the session. The bill was designed to increase state government revenue by 5.7 million dollars by tripling the annual fee which vending machine operators must pay to the state (from $50 per machine to $150 per machine). This is a 300% fee increase on these businesses.

This fee will be devastating to the small business owners who will now face a series of tough decisions regarding the profitability of their business. The first step they will have to take will be to remove vending machines which are marginally profitable. The fee increase alone may erase the entire profitability of some of the marginal revenue producing machines. This will result in less availability of these products to the public and will mean that fewer vending machines stamps will be purchased from the state, which in turn will result in declining revenues to the government. In other words, those who designed this plan as a revenue enhancement may actually be thwarted in their attempt to generate additional revenue.

In other locations, the vending machine suppliers may simply choose to try to pass on the cost of the increased fees to the public. This means you and I will pay the cost through higher prices. However, this, too, will result in declining revenues, because higher prices will result in less demand and thus fewer products being sold. In some cases, older vending machines do not allow for pricing above a certain amount. This means that the vending machine companies will have to replace otherwise fine equipment in order to raise prices.

My constituent is in the process of computing the numbers and determining if he will be able to remain in business. If he does remain in business, it will likely be with fewer machines. This means less buying options for the public, less revenue for the government and a clear demonstration of the punitive effects of this type of policy on the state's economy. It is state government's job to provide an economic climate which makes it easier for small businesses to succeed. State government should never punish small businesses with a 300% fee increase.

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